The Hedgeweek Interview - Dr Amir Ali Farman-Farma, Connexion Capital: "We expect a shakeout and that levered players will get hurt"
Managing director Dr Amir Ali Farman-Farma says that Connexion Capital, an alternative investment advisory firm focusing on managers in the energy, resources, and oil-producing regions of the world, picks managers the firm wants to invest with, not those that hold out the promise of the biggest sales.
HW: What is the background to your company?
AFF: Connexion Capital is an alternative investment advisory firm founded in 2005 with offices in London and Geneva and representatives in the US, Europe and the Middle East. Peak oil, climate change, and the evolving relations between the West and the oil-rich states of the Middle East are three themes that Connexion Capital has exploited.
Since its establishment, Connexion Capital has focused on managers in the energy, resources, and oil-producing regions of the world, leading it to Russia and Central Asia. Investments in nuclear energy, alternative and renewable energy, and industrial metals have also been undertaken.
Connexion Capital (Suisse) was launched in May 2005 by Chris Graves, Connexion Capital LLP (UK) was established in June 2007 by Chris and myself, and Cenk Utkan joined as a partner in February this year. We formerly worked as a team at Fortune Asset Management, now part of Close Brothers. We currently have assets under advice of USD183m.
HW: Who are your key service providers?
AFF: Our lawyers are Spiegel & Utrera.
HW: What is your investment process?
AFF: We search for funds in the energy/resources space and in the energy/resources exporting regions of the world. If they fit our investment criteria and pass our due diligence, we make an initial investment and, subject to a client referral agreement, introduce the fund to our clients.
HW: How have your strategies performed?
AFF: We advise a family office whose investment vehicle has achieved a compound annual growth rate in excess of 25 per cent over the past three years.
HW: How many funds are in your portfolio?
AFF: A maximum of eight over the past three years.
HW: What makes a manager special enough for you to select him?
AFF: Good risk-adjusted returns within the energy/resources space.
HW: What are your criteria for removing managers?
AFF: If they underperform their peer group, stray from stated strategy, or exceed their volatility limit.
HW: How many managers do you have on the substitutes bench?
AFF: Around 10.
HW: What developments do you expect to see in your sector in the year ahead?
AFF: We expect a shakeout and that levered players will get hurt. Some funds will fail to raise money in this environment.
HW: How will these developments impact your own portfolios?
AFF: A global slowdown resulting from a steep recession in the US could adversely affect commodity markets and negatively impact our returns.
HW: What differentiates you from other managers in your sector?
AFF: Unlike other placement agents who pick managers for which they can make large sales, we pick managers we want to invest with.
HW: What are your views on risk?
AFF: If the returns are twice the volatility we are interested, but annual standard deviation should not exceed 15 per cent.
HW: How do you assess investors' expectations?
AFF: Investors want to preserve capital; their expectations are reduced.
HW: How do you distribute your products?
AFF: We distribute the products directly to investors we know in the UK, Switzerland, France, and the Middle East. We work with introducers in other areas.
HW: Are you planning any further launches this year?
AFF: We are seeding a low-volatility Greater Russia Fund. The audited historic average annual return of the manager over three years is 43 per cent with a volatility of 14 per cent, the best risk-adjusted returns in Greater Russia. Investors who come in at launch will have greatly reduced fees.
We are contemplating launching a no-load, no-management fee fund of commodity hedge funds to invest in our managers. This way, investors can get exposure to all our managers with minimal expense.
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